9 Money Myths to Stop Believing Today
Basing your financial decisions on outdated adages, common misconceptions, or too-broad generalizations can prevent your financial success. To help you avoid these pitfalls, we’ve rounded up 9 of the most common money myths that could be keeping you from reaching your goals.
Myth #1: Your 401(k) can be used as an emergency fund.
Employer sponsored retirement plans – like 401(k)s – have many benefits, but doubling as an emergency fund is not one of them. Those accounts are intended for retirement, and there are rules in place to ensure you use them for that purpose.
One of those rules states that you can only withdraw from your 401(k) before age 59 ½ in limited circumstances – like leaving your job or experiencing a verifiable hardship. In some cases, you can borrow from your 401(k), but that typically requires paperwork and approval. Not to mention, you have to pay the money back.
For these reasons, a 401(k) is a poor substitute for an emergency fund. Instead, it is often wise to keep three to six months’ expenses in an easily accessible account to prepare for an unexpected situation.
Myth #2: You can’t save if you have debt.
Paying off debt is an admirable goal. It can help you free up monthly cash flow, save money spent on interest, and bring you peace of mind. However, it is also important to save for the future. And the earlier you start saving, the more time you have to take advantage of compounding investment returns.
The right balance between reducing debt and saving for the future varies greatly from person to person. An experienced financial advisor can help you weigh the cost of your debt with the potential returns of your investments to determine the right course of action for your situation.
Myth #3: You should pay off your mortgage ASAP.
This myth is very similar to the previous one but is so prevalent that it is worthy of its own discussion. A mortgage is often the largest expense in your monthly budget, and it can be shocking to see the total interest you will pay over the life of the loan. However, paying it off early is not always the best course of action.
Whether it makes sense to pay more toward your mortgage or invest your excess cash in the markets depends on many factors like your mortgage rate, monthly budget, and anticipated investment returns. That is why it is important to discuss such a large decision with an experienced and trustworthy financial advisor.
Myth #4: Generational wealth is only for the ultra-rich.
While much of the discussion surrounding generational wealth revolves around the ultra-rich, even people of moderate means can pass wealth to their children. This often requires a comprehensive plan to grow and position your assets, so it is best to speak to your advisor and start planning as early as possible.
In addition to growing your money, you’ll also need a comprehensive estate plan. This begins with crafting a will and naming beneficiaries on your investment accounts. A financial advisor who is part of a team of tax, legal, and investment professionals can help you craft and implement an estate plan that meets your needs.
Myth #5: You should always buy the cheapest option.
When you’re on a budget, it can make sense to buy store brands or discount products in some cases. However, these products aren’t always the highest quality. For this reason, it can sometimes save you money to buy a more expensive product that lasts longer.
Myth #6: Renting is always bad.
This myth is especially important today with mortgage rates on the rise. Sometimes, people refer to renting as “throwing away money” or “paying someone else’s mortgage.” These phrases can be true, but there are also cases where it makes sense to rent.
For example, if you pay less in rent than you would by owning a home, you could benefit from continuing to rent. While this is just one example, it shows that a piece of financial advice can be correct in some cases and yet not applicable to other situations.
Myth #7: You can plan for retirement later.
This is one of the most detrimental myths on this list. It may seem that you have plenty of time to plan and save for retirement. But the reality is, the earlier you begin planning, the less work you have to do later. This is due in part to the power of compound returns.
By nature, investments are intended to provide a return. Over time, these returns are compounded – in other words, you earn a return on both the money you invested and previous returns. These compounding returns mean the earlier you start saving, the less you need to save overall.
Additionally, having a plan can minimize the anxiety surrounding your retirement. If you know what outcomes you need to achieve, and have a plan in place, you can turn your retirement dreams into a reality.
Myth #8: You shouldn’t talk about money.
Many people stigmatize talking about finances, but “money” doesn’t have to be a bad word. In fact, not discussing your financial position with your spouse and financial advisor can leave you in the dark about important topics.
Additionally, it can be helpful to challenge this belief when it comes to your children. Teaching your children about finances can help them approach their future financial decisions with confidence.
Myth #9: Financial planning is hard.
It is true that financial planning can be hard if you attempt it alone. However, with an experienced financial advisor, it is simple.
Your advisor can help you avoid common money myths and make a plan to turn your dreams into actionable outcomes. Then, your advisor can support you as you achieve the successful financial future you envision.
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When you are planning your financial future, there are a lot of ways to go wrong. The experienced financial advisors at Brookstone Wealth Management can help you establish your goals, craft a plan to reach them, and encourage your choices along the way. We focus on coaching, teaching, and mentoring our clients to help you feel confident in every step of your financial journey.
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